Determining Your Products and Costs
And This is How YOU Can Take Advantage
Entering into a market requires strategies and the adequacy of research. You don’t want to enter a normal market offering too high prices. It doesn’t draw any customer to any business. However, there are some areas and some businesses that high prices don’t really matter. Some restaurants offer arguably the same food as some others but the packaging and class it portends allow for its high price. Thus, a lot goes into determining what you want to sell and how much you want to sell it.
Here are ways you can know what determines your products and costs.
Know the Market
Know the market you are launching to. Take a survey of that market and see how you can carve a niche for yourself in the market. Ask questions from the players in the market. What would they like to be better? What challenges are left unsolved? What projections do they have for the market? These questions are pertinent and they need to be answered by you. It is very important to know that you are entering that market to solve a problem by presenting your products as solutions. Know your direct and indirect competitors. Direct competitors are those who are selling the same thing as you while indirect competitors are those selling, though not the same thing as you, the same solution you are selling.
Know the Best Pricing Technique
Pricing could be cost-based or value based. Know which one works best where you are can be very important as you don’t want to cause a big issue for your business. For instance, if you are in a middle class market, you don’t want to sell items with fixed prices over the normal; hardly would anyone buy from you. However, in an upper class market, with packaging, you can make customers pay more and they would care less about it. You can use a value-bases pricing for some products like luxury items, wines, clothes, antiques, arts, etc. You are giving the price on your discretionary view of what the value can be.
Work Out Your Costs
Know how much it costs you to get the products from suppliers and manufacturers. If you are the manufacturer, you would know the cost of producing the item. Put the costs together with other associated costs of transport, marketing, rent, insurance, etc. you have to get all these costs calculated to know what to put down as the real cost before adding your markup for profit.
Consider Cost-plus Pricing
This is one efficient way of arriving at the selling price. This is done by adding a markup to the cost of products and services to arrive at a selling price. This can work in two ways: for a manufacturer or a seller. For a manufacturer, the addition needs to be done of the direct material cost, direct labor cost, costs incurred from outsourcing, and other related costs. These need be added to a profit. This is then divided by the numbers of products or services and the selling price is determined. For a seller, direct labor cost, direct material cost, rates and outgoings, and profits are calculated into a markup percentage which is added to the bulk price of the product individually.
Set a Value-based Price
This is also one beneficial way of determining selling price. Here, the price is fixed in a discretionary manner. This means the price is determined by the perceived value of the product by the seller. This can be very beneficial in that it can improve profitability through generating higher prices without impacting greatly on sales volume. This happens with luxury items. The value of a dress can be determined by a lot of things – from the designer to the materials used on it. Thus, it won’t be the case of having a fixed price but a value-based one. This also applies in original painting merchandise. The value of original paintings especially one by a great artist in history can be priced very high.
Think About Other Factors
There are a lot factors you have to consider. These factors influence what type of product and how profitable that will turn out for you. For instance, if you are looking to deal in the grocery business, you need a lot of things like a cold storage, a cool environment, well made shelves, etc. The amount you spend on all these things matter and you have to see if with the cost at which you are getting these products from the farm, the cost of cold transportation, the cost of store rent, taxes, utilities, etc. you will still make profit. It is very essential to note that with items with fix prices, you need quite a lot of factors to take note of. You need a viable market and a lot of demand as the markup is always quite low.
Stay on Your Toes. Prices can seldom be fixed for Long
You cannot afford to be relaxed – prices change overnight. You have to be on your toes to notice any possible changes that might occur. You must have in mind that prices can seldom be fixed for long as market forces affect prices. It may not be to your advantage but with the inflation in the US economy, you may have price increase. Minimum wage increment, the value of the dollar, government policies, trade bans, increase in tariff and a lot of factors affect prices. When others are selling are normal price, you shouldn’t have yours above or too below. You need to be current and up with the economic trend.
In conclusion, before you set out to start a business, you must consider a whole lot of things. You must know if profit can be made in the venture considering the number of factors inherent. You must do your market research, know how to fix your prices, and be on your toes for unexpected but inevitable changes. It is very important to know your market.
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